Article reprinted from: BitPush
On Wednesday afternoon local time, the Federal Reserve announced a 25 basis point cut to the benchmark policy rate but hinted that the number of rate cuts in 2025 may be lower than previously expected, causing both the U.S. stock market and the cryptocurrency market to plunge.
The latest quarterly economic forecast from the Federal Reserve shows that there may only be two rate cuts in 2025—down from the four predicted in September and fewer than the three expected by the market before the meeting—indicating that they will be more cautious in balancing inflation and economic growth. Fed members' predictions for personal consumption expenditures (PCE) and core PCE inflation for next year rose from the September forecasts of 2.1% and 2.2% to 2.5%.
Powell described this shift as a 'new phase' in monetary policy and emphasized that after a 100 basis point rate cut in 2024, rates are now clearly closer to a neutral stance.
As of the market close on the day, all three major stock indexes fell, with the Dow initially down 2.59%, setting a record for the longest single-day decline in 50 years (down for the 10th consecutive trading day); the S&P 500 index closed down 2.95%, and the Nasdaq closed down 3.56%. The dollar surged to a two-year high, and the Chicago Board Options Exchange Volatility Index (also known as the VIX and Wall Street Fear Index) skyrocketed 58% to 25, reflecting increased uncertainty among investors and heightened anxiety about future interest rates.
Did Powell's remarks 'slap' Trump in the face?
At Wednesday's press conference, in response to an Axios reporter's question about Trump's idea of establishing a strategic Bitcoin reserve after taking office, Powell said: "We (the Federal Reserve) are not allowed to own Bitcoin. The Federal Reserve Act stipulates what we are allowed to own, and we do not wish to change the law. This is something for Congress to consider, but we do not want the Federal Reserve to change the law."
After the Federal Reserve announcement, Bitcoin fell to $104,000, and subsequently, after Powell's speech, it dipped to around $100,256, dropping nearly 5% within 24 hours. Altcoins fell even more sharply, with XRP, ADA, and LTC dropping nearly 10%.
Trump has repeatedly stated the need to establish a strategic Bitcoin reserve. He mentioned in an interview with CNBC last week: "We are going to make great achievements in the cryptocurrency space because we do not want any other country to embrace cryptocurrencies; we want to be the leaders."
BitPush previously reported that Wyoming Republican Senator Cynthia Lummis is drafting a bill that would instruct the U.S. Treasury to purchase 1 million Bitcoins over five years, with funding sourced from Federal Reserve bank deposits and gold reserves.
Other states in the U.S. have also proposed bills to invest in Bitcoin, with Pennsylvania Republican lawmakers introducing a bill in November that allows the Pennsylvania Treasury to invest in Bitcoin, digital assets, and cryptocurrency-based exchange-traded products.
The idea of establishing a strategic Bitcoin reserve has also faced some criticism. Former New York Federal Reserve Bank President Bill Dudley stated in a Bloomberg opinion piece last week that this is a "bad deal" for Americans.
A recent analysis report from Barclays claims that funding a strategic Bitcoin reserve may require congressional approval and the issuance of new government bonds. Barclays analysts stated that given the possible ways to establish such a reserve, "we suspect the plan will face strong resistance from the Federal Reserve."
What will the subsequent trend be?
The cryptocurrency market currently has overly high expectations for the U.S. to establish a strategic Bitcoin reserve while ignoring other countries. Grayscale Research indicates that sovereign wealth funds in Asia and the Middle East are more likely to be the next driving force.
Grayscale's research director Zach Pandl stated: "After Federal Reserve Chairman Powell's speech, the price of Bitcoin plummeted, indicating that investors may be placing too much emphasis on the theoretical possibility of Bitcoin as a strategic reserve. Grayscale Research anticipates that more nation-states will adopt Bitcoin, but the next step is more likely to be sovereign wealth funds in Asia or the Middle East, which already manage highly diversified asset pools."
Andre Dragosch, head of European research at Bitwise, believes: "I think the biggest trouble for the Federal Reserve right now is that despite the rate cuts, the financial environment is still tightening. Since September, long-term bond yields and mortgage rates have been rising, and the dollar has appreciated, which also means the financial environment is tightening. The continued appreciation of the dollar also poses macro risks for Bitcoin, as the dollar's strength is associated with a contraction in global money supply, which is often unfavorable for Bitcoin and other crypto assets. In fact, the Federal Reserve's net liquidity is continuously decreasing. In my view, tightening liquidity and a strong dollar are also the biggest risks BTC faces... On the other hand, the on-chain factors for BTC remain very favorable, especially with the continued decline in exchange balances, which supports the hypothesis of a continued worsening supply gap for BTC."
The decline in Bitcoin has led to drastic changes in positions on both the long and short sides. According to charts from crypto analyst Skew, long positions are being liquidated while shorts are taking profits, with Bitcoin prices seeking support in the $100,000 to $98,000 range. Skew emphasized that to reverse the downward trend, Bitcoin prices must reclaim the $100,000 to $101,400 range through spot buying and establish a solid footing on the daily chart.
Additionally, the 4-hour chart shows that BTC bulls need Bitcoin to exhibit strong buying power around $100,000 and successfully close above $101,400 to solidify the upward momentum. If this level cannot be maintained, it may retest the support level and buying accumulation zone around $98,000.
Analysts from the blockchain analysis platform Santiment are optimistic and stated on X: "Given that BTC is temporarily holding above $100,000, and the decline is not as severe compared to the S&P 500 index, once it stabilizes in the next 24-48 hours, this can actually be interpreted as a strong signal."
